Five-Year Cycle For Individually-Designed Plans

Several years ago the IRS created a five-year determination letter submission cycle for individually-designed plans (IDPs).  Under this scheme, an IDP will be required to submit an application for a favorable determination letter once every five years.  IDPs include both defined benefit and defined contribution plans that are not pre-approved plans.  The timing of the submissions for IDPs is determined by the last digit of the plan sponsor's Employer Identification Number (EIN).  We are currently in Cycle D. Please refer to the following chart to see if you have to amend, restate and submit your plan(s) during Cycle D.

As an alternative to submitting a plan in Cycle D, a plan sponsor of a Cycle D plan whose first plan year beginning on or after January 1, 2009 ends on or after February 1, 2010, may defer submission of its plan until Cycle E (February 1, 2010 - January 31, 2011). In order to defer submission of such a plan until Cycle E, an application must be timely filed in Cycle E. In such a case, the plan will be treated as having been filed within the plan's EGTRRA remedial amendment period and will be reviewed on the basis of the 2009 Cumulative List. However, such a plan will be treated as a Cycle E plan solely for this initial cycle, and all subsequent submissions will be made in Cycle D.
Exceptions To The General Rule For Determining A Plan's Five-Year Cycle
The following rules apply to determine the five-year remedial amendment cycle of a plan maintained by more than one employer, a plan maintained by multiple members of a controlled group under IRC §414(b) or (c) or employers that are members of an affiliated service group under IRC §414(m), a governmental plan and other special situations.
1.   If a plan is (i) a jointly trusteed single employer collectively bargained plan where the joint board of trustees is treated as the plan sponsor for purposes of Form 5500, or (ii) a plan maintained by multiple members of a controlled group under IRC §414(b) or (c) or an affiliated service group under IRC §414(m) (other than a multiemployer plan under § 414(f), a multiple employer plan, or a governmental plan under IRC §414(d)), then the plan's five year remedial amendment cycle is determined with reference to the last digit of the EIN that is or will be used to report the plan on Form 5500.
2.   If more than one plan is maintained by members of a controlled group under IRC §414(b) or (c) or an affiliated service group under IRC §414(m), the employers may elect that the five-year remedial amendment cycle for all plans maintained by any members of the group (other than a multiemployer plan under IRC §414(f), a multiple employer plan, a governmental plan under IRC §414(d) plan, or a jointly trusteed single employer collectively bargained plan where the joint board of trustees is treated as the plan sponsor for purposes of Form 5500) will be Cycle A.  The Cycle A election must be made jointly by all members of the controlled or affiliated service group, except that this election may be made on behalf of all of the members by the parent, in the case of a parent-subsidiary controlled group.  Alternatively, if more than one plan is maintained by a controlled group under IRC §414(b) or (c) that is a parent-subsidiary controlled group, the election may be made that the remedial amendment cycle for each plan (other than a multiemployer plan under IRC §414(f), a multiple employer plan, a governmental plan under IRC §414(d) plan, or a jointly trusteed single employer collectively bargained plan where the joint board of trustees is treated as the plan sponsor for purposes of Form 5500) is determined by reference to the last digit of the parent's EIN. This alternative parent's EIN election must be made by the parent.
3.   If (i) separate tax-exempt organizations which are a group of related organizations but are not a controlled group under IRC §414(b) or (c) or an affiliated service group under IRC §414(m) are maintaining separate plans, (ii) the terms of those plans are substantially the same, and (iii) all or substantially all of the discretionary authority concerning the plans' administration and operation is handled by a centralized organization (such as a national headquarters or a common administrative committee), then an election may be made by such centralized organization that the remedial amendment cycle for all of the plans is determined based on the EIN of the centralized organization (other than a multiemployer plan under IRC §414(f), a multiple employer plan, a governmental plan under IRC §414(d) plan, or a jointly trusteed single employer collectively bargained plan where the joint board of trustees is treated as the plan sponsor for purposes of Form 5500).  If the group of related organizations also includes related taxable entities to which this paragraph would apply if they were tax-exempt, the plans maintained by those taxable entities whose terms are substantially the same are permitted to apply the same election that can be applied for the tax-exempt entities.
Required Updates
The Cumulative List of Changes in Plan Qualification Requirements (Cumulative List) is the annual listing of changes required to be reflected in the following year's opinion, advisory, or determination letter submissions.  The Service published the 2008 Cumulative List (2008 CL) on November 25, 2008 in Internal Revenue Bulletin 2008-50 as IRS Notice 2008-108.  The 2008 CL is to be used primarily by plan sponsors of IDPs that are in Cycle D.
The 2008 CL tells plan sponsors what issues the Service has specifically identified for review in determining whether a plan, filing in Cycle D, has been properly updated.  Specifically, the 2008 CL reflects law changes under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), Pub. L. 107-16 (with technical corrections made by the Job Creation and Worker Assistance Act of 2002 (JCWAA)), Pub. L. 104-147, the Pension Funding Equity Act of 2004 (PFEA), Pub. L. 108-218, the American Jobs Creation Act of 2004 (AJCA), Pub. L. 108-357, the Katrina Emergency Tax Relief Act of 2005 (KETRA), Pub. L. 109-73, the Gulf Opportunity Zone Act of 2005 (GOZA), Pub. L. 109-135, the Pension Protection Act of 2006 (PPA '06), Pub. L. 109-280, and the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007, Pub. L. 110-28.
The Service will not consider in its review of any determination letter application, for the Cycle D submission period, any:
(i)     guidance issued after October 1, 2008;
(ii)     statutes enacted after October 1, 2008;
(iii)    qualification requirements first effective in 2010 or later; or
(iv)    statutory provisions that are first effective in 2009, for which there is no guidance identified in this notice.
While the 2008 CL does not include any items described in (i) through (vi) above, a plan must comply with all relevant qualification requirements, not just those on the 2008 CL in order to be qualified.  Terminating plans must include all law changes in effect at the time of termination.
1.   Special Rules For The Pension Protection Act Of 2006 (PPA ’06)
A plan amendment made because of a change made by PPA '06 generally may be retroactively effective, if, in addition to meeting the other applicable requirements, the amendment is made on or before the last day of the first plan year beginning on or after January 1, 2009 (January 1, 2011 in the case of a governmental plan).
The PPA '06 provisions are now included in the 2008 Cumulative List and are identified as "New."  Plans submitted in Cycle D must be amended to include the applicable PPA '06 provisions listed in the 2008 CL.  All plans submitted in Cycle D will receive a determination letter which covers PPA '06, even if that plan’s deadline for amending for PPA '06 is after January 31, 2010.
2.   Special Rules For The Heroes Earnings Assistance And Relief Tax Act Of 2008 (HEART Act)
A plan amendment made pursuant to sections 104(a) or 105(b)(1) of the HEART Act generally may be retroactively effective, if, in addition to meeting the other applicable requirements, the amendment is made on or before the last day of the first plan year beginning on or after January 1, 2010 (January 1, 2012 in the case of a governmental plan).
Plans submitted in Cycle D can be amended, at the option of plan sponsors, to include the applicable HEART Act provisions listed in section VII IRS Notice 2008-108.  However, the Service will not consider the HEART Act in issuing determination letters for Cycle D plans, and such letters cannot be relied on with respect to the requirements of the HEART Act.
Section 107(a) of the HEART Act extends the applicability of the qualified reservist distribution to individuals ordered or called to duty after December 31, 2007. The Service is treating an amendment made pursuant to section 107 of the HEART Act as if it was included in the amendments described in section 1107 of PPA '06. See section VI of IRS Notice 2008-108, # 11, footnote 4, for additional information about amending a plan for qualified reservist distributions.

Please contact Michael F. Yates & Company Inc. for additional details. CONTACT MFYCO